Buy Facebook On Any Weakness -Morgan Stanley

Morgan Stanley’s Brian Nowak does not believes Facebook Inc FB's comments regarding future revenue and opex are a cause for concern.

Nowak maintains an Overweight rating on the company, while lowering the price target from $160 to $155.

Buy On Weakness

The analyst recommended buying into any weakness, given that the company is growing its earnings at 30 percent, while remaining bullish on the stock, given that Facebook delivered 60 percent top-line growth with 70 percent incremental margins and near-record user growth.

Q3 Outperformance

The company reported its Q3:16 results with 59 percent year-on-year ex-FX ad revenue growth and 70 percent incremental adjusted operating margins.

Nowak believes these results “speak to how early it still is in FB's monetization potential and the strong underlying leverage and earnings power behind this ~1.2 billion daily active user base platform.”

North America advertising was especially strong during the quarter, growing 62 percent year-on-year and adding more than $1 billion to the ad revenue, year-on-year, for the fourth consecutive quarter.

Facebook’s revenue, non-GAAP operating margin and non-GAAP EPS beat the consensus forecasts for the quarter.

“FB's growing daily user base and time spent per user continues to improve its monetization opportunity [...] as greater engagement improves FB's user data and targeting while also enabling the company to deliver more ad impressions and monetization opportunities,” Nowak went on to say.

Looking Ahead

However, Facebook’s comments regarding top-line performance in 2017 led to some investor concern.

According to an article on Business Insider, the stock declined more than 7 percent in after hours trade, following management’s comments regarding expectations of a “meaningful” slow down in revenue growth, along with potential for “aggressive investments, in 2017.

Nowak mentioned that Facebook expects ad revenue growth to slow down due to a slowing in ad load.

At last check, Facebook was down 4.72 percent at $121.16.